Bombay HC stays fresh Rs 3,000 cr Vodafone tax order

British telecom major Vodafone got interim relief from a transfer pricing tax demand, as the Bombay High Court stayed a Rs 3,000 crore order slapped by the Income Tax department.

The interim stay will last till March 7, and the tax department has been asked not to take any steps until further action. This fresh tax demand pertains to a transfer pricing case wherein the revenue department believes that a share sale between the Pune outsourcing unit of Vodafone and its parent company, was not done at arms-length pricing.

Last month, the department sent aRs 3,700 crore tax order on the same issue for the assessment year of 2008-09. The latest Rs 3,000 croreorder belongs to yet another assessment year of 2010-11. The department has been treating the amount remitted to the parent company as a ‘loan’, and can be extended for other assessment years. The orders come with the interest associated and the penalty.

Both the transfer pricing order put together will net aRs 6,700 crore claim on Vodafone on the transfer pricing issue. Apart from the transfer pricing case, the second largest telecom operator is also fighting a much bigger tax case over capital gains whose claim is at Rs 11,200 crore. This case pertains to the 67% stake purchase by Vodafone from Hutchinson in 2007.

Vodafone had said earlier that the IT department’s transfer pricing claim has no basis in law. It had said in a statement that their transaction was a share subscription and not a share sale, and that share subscriptions are not covered by transfer pricing rules, either in India or abroad.

The High Court had also refused to hear a petition filed by the company for the assessment year 2008-09, and sent it back to the dispute resolution panel. The Income Tax Appellate Tribunal or ITAT had given a six-month stay on the Rs 3,700 crore order, in December last year.